Two Appellate Courts Hold That Banks' Duty of Care to Non-Customers Is Extremely Limited

By Ryan M. Cunningham of Fitch Law Partners LLP posted in Bank Litigation on Monday, July 13, 2015.

The United States Courts of Appeals for the Sixth and Eleventh Circuits have added to the significant body of law limiting a bank's duty to non-customers harmed or defrauded by one of the bank's actual customers. The Sixth Circuit reaffirmed that, under Michigan law, a bank only owes a duty of care to its own customers. The Eleventh Circuit found that, under Florida law, a bank has no fiduciary relationship with its customers and only owes a duty of ordinary care in arms-length transactions with its customers, and that any aiding and abetting liability for acts of a bank's customers is limited to cases where a bank has actual knowledge of the customer's bad actions.

In the Sixth Circuit case, SFS Check, LLC v. First Nat'l Bank of Delaware, 774 F.3d 351 (6th Cir. 2014), SFS Check, LLC ("SFS") provided financial transaction processing and funds transfers to its customers, through an account at Fifth Third Bank. Fifth Third Bank determined that an SFS account at First National Bank of Delaware ("First National") was processing illegal gambling transactions through SFS's Fifth Third Bank account, notified SFS, and closed the account. SFS claimed that an unnamed third-party had opened the First National account in SFS's name, and as the named party on the account, First National owed SFS a duty of care.

The Sixth Circuit rejected the contention that merely by having an account in the name of a company, that company becomes a customer of the bank. SFS did not allege that it opened the First National account, deposited money into the account, had authority to withdraw funds from the account, or received any monthly statements on the account. SFS's only connection to First National was that an unnamed third party used SFS's information to open the account in SFS's name. The Sixth Circuit held this was insufficient to create a customer relationship imposing a duty of care on First National. "We decline to adopt a new rule that being the victim in a fraudulent scheme involving an imposter bank account causes the victim to become a customer of the bank." Id. at 358.

The Eleventh Circuit reached a similar result through a different path in ARBITRAJES FINANCIEROS, S.A. v. Bank of America, N.A., 2015 WL 1346096 (11th Cir. Mar. 26, 2015). Plaintiffs were foreign bond traders who needed access to U.S. accounts to convert their proceeds into U.S. currency, but lacked the proper licenses and registrations to open their own U.S. accounts. They contracted with Rosemont Finance Corp. ("Rosemont"), which represented to the plaintiffs that it had a relationship with Bank of America, N.A. ("BANA") and could open the necessary deposit accounts. Rosemont's accounts at BANA were opened in Rosemont's name only.

In 2009, the U.S. government seized the accounts in a money-laundering investigation, and the plaintiffs settled with the government for a portion of the accounts, as neither the plaintiffs nor Rosemont actually had the proper registrations or licenses required. The plaintiffs then sued BANA for negligence, Uniform Commercial Code violations, and aiding and abetting Rosemont's breach of fiduciary duty. While the Eleventh Circuit did not dismiss the negligence claim on the basis that plaintiffs were not customers of the bank, it ruled that, under Florida law, a bank has no fiduciary relationship with its customers and owes "only a duty of ordinary care in arms-length transactions." Id. at *1. Such a duty did not require BANA to investigate Rosemont's credentials to protect the plaintiffs, plaintiffs had their own duty to perform due diligence. Further, while the court found that a bank could be liable for aiding an abetting a customer's breach of fiduciary duty to a non-customer, any such liability requires actual knowledge of the customer's breach, and no duty of care or investigation is imposed on banks to actively discover such activity.

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